Sole trader

Home-based Businesses: Tax And Legal Requirements: SmartSolo

Home-based business regulations explained

By Michelle Hammond
Wednesday, 01 August 2012

feature-house-solo-thumbHome-based businesses might not have to worry about office rents and staff wages, but that doesn’t mean that they completely escape time-consuming red tape.


Last week, StartupSmart reported on the progress of the National Business Name Register, which is causing confusion for some home-based businesses.


In order to save you any more stress, we’ve provided a snapshot of the things you need to know and do when you set up a home-based business.


Here are the three key areas of regulation that you need to be across:


1. Tax structures


“You have the option of structure through which to run your business,” says business advisor Greg Hayes.


“Smaller start-up businesses often tend to be unincorporated structures such as sole traders or partnerships. These are simple, flexible and low-cost structures.”


“The downside of these structures is that… as the business becomes more profitable they are not particularly tax-effective. You will quickly move into the higher marginal tax brackets.”


Hayes says some business owners start off with a simple structure and then transfer the business into an incorporated structure once the signs of growth and success are there.


“This can work effectively as long as you don’t leave the decision too long. There can be capital gains tax and stamp duty issues in a transfer,” he warns.


According to the Australian Taxation Office, there are a number of basic tax requirements for small businesses to remember, including:


Tax file number


Unlike partnerships, trusts and companies – which need to apply for a separate TFN – individuals in business can use their individual tax file number.


Australian business number


If you are in business, you can register for an ABN.


Goods and services tax


You must register for and collect GST if your annual turnover is $75,000 or more, although you can choose to register if your turnover is less than this amount.


Additional tax considerations


If you run a home-based business, you can generally claim similar expenses to a business that is not home-based, according to the ATO.


However, there are two types of expenses that are specific to carrying on a home-based business:

  • Expenses related to the area of your home you use for business.
  • Motor vehicle expenses you incur when travelling between your home and other business locations.

As tax expert Marc Peskett explains, you need to be able to separate business costs from personal costs, which can be a “problem area” when it comes to your premises.


“If you’ve got a separate place of business then it’s a little bit easier to do but if you’re just converting a bedroom into an office, [it can be difficult to determine],” Peskett says.


“The big cost is the cost of the premises, so the tax office has certain guidelines [on that].”


2. Business registration


“If you operate a company, you need to notify ASIC of your business and your principal place of address,” Peskett says.


“If you operate under a business name you need to register that, and that’s controlled by ASIC now.”


Under the new service, businesses only need to register their name once to have national effect and have the option of registering their name at a cost of $30 annually or $70 for three years.


Under the new system, future business owners can also look up the availability of a business name through a real-time automated check.


ASIC also encourages new business owners to check for existing registered trademarks and domain names to avoid running into legal difficulty at a later stage.


Importantly, registering a business name does not provide any proprietary rights over a name – only a trademark can give that kind of protection.


Business owners don’t need to register a business name if they trade under their own name.


3. Occupational health and safety


“Basic OH&S requirements are still relevant despite the fact that the business is home-based. This will be most relevant where you are employing staff,” Hayes says.


“Whether or not it is just the owner of the business or whether there are staff employed, [and] the extent to which customers or suppliers want to visit the business – these are all factors that determine whether or not it is appropriate to operate your business from home.”


According to home-based business guru Jane Shelton, ensuring your home is a safe workplace requires a systematic approach to finding and fixing hazards and risks, and any particular circumstances that apply to your home work base.


“In some cases, OHS laws relating to specific hazards require you to do certain things in identifying hazards and controlling risks,” Shelton says.


“Information about the home may be collected at the referral/assessment stage or during a specific home safety assessment before you take on either clients or workers.”


“Where possible, the issues identified in the assessment should also be discussed with clients and family. It is good practice to ask both to sign off on the findings of the assessment.”

Did you like this article? 

Sign up to the StartupSmart Newsletter to receive a daily news wrap-up straight to your inbox AND a free eBook!

Invalid Input